Comptroller raises deficit estimate by $50 million

After taking its first steps last week out of a growing fiscal pit, state government slid backward Monday as state Comptroller Kevin P. Lembo identified another $50 million in red ink in the current budget that he largely attributed to the rate of Medicaid spending.

"Medicaid -- the largest single gross appropriation line-item in the budget -- is significantly above the budget target," Lembo said.

The comptroller officially certified a $415 million deficit, though he acknowledged that the actual shortfall is probably closer to $290 million. Because of a technicality in state budgeting rules, Lembo's office could not count the emergency budget cuts ordered last Wednesday by Gov. Dannel P. Malloy in its latest report. Those savings will be reflected in future assessments.

As expected, Lembo's report also officially triggers the statutory requirement that Malloy submit a deficit-mitigation plan to the General Assembly -- a development the administration conceded several weeks ago was unavoidable.

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The Malloy administration gently pushed back at the estimate by Lembo, a fellow Democrat who was elected in 2010 with Malloy, while acknowledging a shortfall that needs to be addressed by a deficit-mitigation plan.

"We disagree with the number the comptroller is using today," Roy Occhiogrosso, the governor's senior adviser, said in an email. "However, the governor, comptroller, and it seems legislators all agree there is a current year shortfall that needs to be addressed before the end of the calendar year. The deficit mitigation plan the governor will propose within the next couple of weeks will, based on the best available data at the time, bring the current-year budget into balance."

Occhiogrosso gave no basis for that disagreement, other than saying the governor's and comptroller's offices are projecting different rates of spending.

Though declining revenue forecasts have produced much of the red ink projected since September, surging Medicaid caseloads and projected cost overruns in some state agency overtime accounts contributed to the latest growth in Lembo's estimation of the deficit.

Lembo noted that growth in the Medicaid for Low Income Adults program, which serves poor adults without minor children, has added more than 4,000 recipients since July 1.

"Medicaid experienced double-digit increases last year and many of those trends are continuing this fiscal year, according to data from the Department of Social Services," Lembo said.

"The fiscal year 2013 budget relied on over $100 million from Medicaid program savings initiatives, many of which have not been implemented to date," Lembo said, "while caseload growth continues in the low-income adult program area with the addition of more than 4,000 clients since the start of the fiscal year."

The governor's budget office had projected a $365 million deficit in its last official monthly assessment, filed Nov. 20 with Lembo's office.

The administration tweaked that figure slightly last week, lowering it to $363 million to reflect increased federal aid to help state defray Medicaid expenses.

But Malloy took the first major step to reduce the shortfall last Wednesday, cutting $123 million. Health care, social services and public colleges and universities took the largest hits.

Technically, the governor used his emergency authority to slice $170 million off the books. But about $47 million involved spending the administration had already cut to meet miscellaneous savings targets built into the original budget. That cut effectively lowering the deficit to just under $240 million.

The comptroller's office is required to base its monthly assessment onthe report submitted by the governor's budget staff. Therefore, Lembo said the additional problems he identified would expand the administration's $365 million deficit forecast to $415 million.

But the comptroller also acknowledged the $123 million in cuts ordered by the governor, even if they cannot be reflected in this month's projection.

If those cuts are applied to Lembo's $415 million deficit forecast, the new shortfall is $292 million.

Regardless, both figures are well in excess of the threshold needed to trigger a mandatory deficit-mitigation plan.

Whenever the comptroller certifies a deficit larger than 1 percent of the general fund, state law requires the governor to submit a plan to the legislature. In this year's $20.54 billion total budget, the general fund -- which covers most operating expenses -- totals $19.14 billion, putting the 1 percent threshold at $191.4 million.

Lembo took a cautious view of fiscal trends, noting the budget may face pressures from unreimbursed costs from Hurricane Sandy and potential federal reductions. He said he remains concerns about the general health of the national and international economies.

"I will be closely monitoring any changes in these areas," he said. "Projected state spending above budgeted levels, and the slow pace of national economic recovery are impeding the state's ability to bring the budget into balance. Economic indicators are below the levels normally observed at this stage of a recovery."

The state added 1,200 payroll jobs in October, but it is down 2,800 jobs over the past year, which has seen four months of job gains and five months of losses.

Connecticut has recovered 30,200, or just over one quarter, of the 117,500 total nonfarm jobs lost in the March 2008 to February 2010 recession. The private sector has regained about 37.5 percent of its job loss.